Fresenius looks to sell JV stakes in clinics

(Crain's) ― Fresenius Medical Care A. G. & Co. is seeking to sell minority stakes in some of its local dialysis clinics to doctors, an apparent bid to attract physicians and boost revenues amid increasing competition in the Chicago market.

The German health care giant, which is the largest provider of dialysis services in the area, is looking to sell joint venture stakes in 21 of its 79 clinics here. The clinics currently are wholly owned subsidiaries of the U.S. subsidiary of Fresenius, which is based in Waltham, Mass.

The changes in ownership structure come amid a flood of proposals by competitors to enter the Chicago market or expand operations here. Fresenius also is planning to expand.

By offering ownership stakes, Fresenius is increasing its chances of recruiting and retaining medical directors of the clinics, observers say. And the deals also could prove to be key revenue generators as nephrologists refer their kidney patients to clinics in which they have an ownership stake.

Fresenius is looking “to form alliances so these physicians are more likely to use Fresenius-owned centers,” says health care lawyer Steven Harris, a partner in the Chicago office of law firm McDonald Hopkins LLC, who isn't involved in the deals.

Doctors with “skin in the game” are typically better managers, says Charlotte Chapple, director of operations for Associates in Nephrology, a Chicago-based group with 31 doctors.

“If the physician takes a little more of an active interest in increasing their revenue, then the profits and margins of Fresenius also increase,” she says.

Increased competition in Chicago didn't prompt Fresenius to sell venture stakes, which will be offered to both doctors and hospitals, says Robert Manning, vice-president for physician strategies for Fresenius' U.S. subsidiary.

“There are new competitors coming into the market all of the time,” he says.

The minority owners will help the company run its clinics more efficiently while ensuring high-quality care.

“They bring insight from a quality and clinical standpoint and also from an operational standpoint,” he said. “They bring to us a knowledge and appreciation of looking at the bigger picture.”

Joint ventures between dialysis providers and nephrologists are common in the industry, said Sue Rottura, president of the Philadelphia-based National Renal Administrators Assn., which represents small and medium-sized dialysis providers.

Under the state's Health Care Worker Self-Referral Act, physicians in Illinois, including nephrologists, generally are prohibited from referring their patients to clinics in which the doctors have an ownership stake. But the ban is not categorical.

Illinois law permits such referrals if the doctor is personally involved in the clinic's care, says Frank Urso, general counsel of the Illinois Health Facilities and Services Board, which must approve Fresenius' plans.

The matter has yet to be scheduled for board review.

Bad Homburg, Germany-based Fresenius reported net revenue of $6.2 billion during the first half of 2011, a 7% increase over the first half of 2010.